Liberty takes a R4.8bn pounding
Group opts not to pay dividends as it posts R1.54bn headline loss after claims soar in pandemic
Life insurance and asset manager Liberty Holdings had a dramatic swing in profitability due to the devastating effect of Covid-19 late in 2020. But it managed to escape with just a small top-up in its provisions for the pandemic.
Life insurance and asset manager Liberty Holdings had a dramatic swing in profitability due to the devastating effects of the second wave of Covid-19 late in 2020. But it managed to escape with just a small top-up in its provisions for the pandemic.
“It was a year we were able to demonstrate and live the purpose the company was established for, set up for, but I can’t think of a tougher year,” says Liberty CEO David Munro.
Liberty experienced a dramatic R4.8bn swing year-onyear, from headline earnings of
R3.25bn in 2019 to a R1.54bn loss in 2020. Most of this related to the establishment of a pandemic reserve of R3bn to deal with the immediate fallout of elevated insurance claims associated with the pandemic.
The group added a small amount of R73m to its reserve at year end. So far it has drawn down R823m from the reserve to pay claims and related expenses associated with Covid-19. Total death and disability claims rose by 11.4% during the year to R11.7bn.
“The severity of the second wave was worse than the first wave. It will change the price of risk, but as the experience develops, we will be in a better position to understand the impacts,” said CFO Yuresh Maharaj. The other major contributor to the loss was the R1.2bn economic effect of the lockdown, manifested in constrained sales and higher costs.
Lower returns in the shareholder investment portfolio were also a source of lower earnings, falling from more than R1bn in 2019 to just R27m in 2020. The group opted not to pay interim and final dividends for 2020, having paid out a total of R7.12 per share previously, representing about R2bn.
The group continues to invest in its platforms under the banner of augmenting interaction with clients through its tied broker network with enhanced electronic platforms. Liberty incurred expenses of R307m for the year, almost twice the amount spent the year before, on “group strategic initiatives”.
Asset management division Stanlib was the standout performer, increasing earnings by 1% to R466m and lifting assets under management (AUM) 8% to R614bn, with fixed-income portfolios benefiting as consumers and businesses hoarded cash during the pandemic.
“We haven’t seen a lot of outflows in balanced funds and equity portfolios, and we think this is because we have done a great job of turning the business around and improving the performance of our funds,” said Stanlib CEO Derrick Msibi.
Msibi expects continued strain for flows into retirement savings products.
“There has been a decline, companies have been restructuring and paying people [severance packages]. There was also a three to six month holiday in retirement contributions during the height of the lockdown, so flows into retirement products are lower now than before the pandemic. Inflows are going to be muted going forward.”